Managed care firm CorVel recently announced its results for the most recent quarter; revenues are down 7% and EPS dropped 12.5%. The company attributed its poor returns to soft claims volume in the workers comp sector (the source of most of CorVel’s revenues), higher costs for regulatory compliance, and soft case management volume.
Perhaps even more telling is the trend: profits for the quarter were .28 per share last quarter, .32 in the same quarter in 2004, .40 in 2003, and .36 in 2002. The profit margin is also slim at $2.8 million on revenues of $70 million. While the cost of revenues declined, SG&A expenses actually increased by 1%. One wonders how this is possible, despite the “increased costs of regulatory compliance.” Moreover, the stock carries a hefty P/E of 29, a valuation more in keeping with a growth stock than one with a three-year trend of flat or declining revenues and profits.
What is really hurting CorVel, which is most accurately characterized as a work comp managed care firm, is their business model and reliance on revenues and profits from nurse case management.
CorVel is highly decentralized, with operations management varying greatly from one office to the next. Some of their offices, notably northern Virginia, appear to be well run, while others, including south Florida, have significant problems as evidenced by the Broward County School Board audit. In addition, sources indicate CorVel’s IT infrastructure hampers their ability to serve national customers, as it has very limited ability to integrate across offices. I’m no IT expert, but the company’s dearth of national accounts seems to support that claim.
Nurse case management is a low-margin, high fixed-cost business that is mature, highly price competitive, and fraught with opportunities for “creative” billing. CorVel has hundreds of highly-compensated nurses that must be working billable hours at all times if it is to generate any reasonable returns. This is a tough, tough business that is likely dragging down results.
The company has made several acquisitons over the last couple of years which may have helped generate positive results; mention of these were notably absent in the earnings release.
In their earnings release, CorVel noted that it’s Network Solutions (PPO) revenues increased as a percentage of total revenues. This seems to imply that it was flat or negative quarter-over-quarter. Industry sources indicate that CorVel did not make it past the first round in a recent PPO network RFP process at a large national carrier due to an inability to share critical pricing data.
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Joe, I think that the reason that there revenues are down is that there CEO Gordon Clemens made a decision to stop sharing managed care revenues with there TPA partners. The shock wave of Elliott Spitzer! This is the reason for the drop in claim volume. Gordon deemed these undisclosed fees a conflict of interest, Corvel is a public company not making this decision could have been a political execution.
actually, according to that logic his profits should have increased due to full capture of PPO savings even if revenues decreased due to TPAs dropping CorVel. And, CorVEl’s numbers have been steadily dropping for three years, not just one quarter. In addition, while there may have been some impact on case management volume, the Broward County audit suggests that if Clemons did in fact make that decision, it happened after the audit period which ended earlier this year.
Net is CorVel results may have been somewhat impacted by such a move, but there are clearly larger issues at play here.
Joe, I think your thought process on increased PPO revenues is accurate, but the timing of that increase due to volume loss is contingent on Corvel executing there employer direct strategy (time will tell)… I would love to read the Broward County audit is it available?
I agree there are larger issues at play but not just with Corvel, I would argue from my 15 years of claims and managed care consulting that Broward County would have obtained similar results utilizing other large managed care companies IE: Concentra, Genex, Intracore, have the data base to valadate it!
there may well be other ethics-challenged companies out there, but this is one of the more egregious I have come across.
The report is available at Broward County SB offices, I got it directly from them on site. It may be posted on their website at some point – it is 210 pages.